Two weeks ago, debt relief was the topic of an article in the “Your Money” section of the New York Times, and I was quoted along with nine other experts on consumer debt from different parts of the country. The feature by Jane Birnbaum of NY Times, titled “Debt Relief Can Cause Headaches of its Own”, focused on debt management repayment plans.

An important point made in the write-up was one I want to emphasize: debt management plans are not the same as debt settlement plans. In cases where all that’s needed for a borrower to dig out of debt is some belt-tightening and budgeting, a debt management repayment plan negotiates reduced interest rates, but the balances remain the same. In debt settlement, creditors agree to a lump sum payment of a reduced amount and accept that as payment in full. As a bankruptcy lawyer in Indiana, I am sometimes able to negotiate debt settlements on behalf of clients, and that is one of the many options I discuss with them before we select a strategy to handle their debts.

There are more than a thousand debt settlement companies nationwide, and the Times article quotes several experts who warn that many of these companies exploit debtors by taking monthly fees from clients’ bank accounts, promising to negotiate a settlement when borrowers have saved enough for a lump sum settlement. Meanwhile, the balances shoot up for those debtors who took the advice of the debt settlement company to stop making monthly payments (due to penalties and higher interest rates), and sometimes the creditors begin to attach debtors’ wages! Several of the experts advise consumers to deal only with settlement companies that charge after settlement is complete. Deanne Loonin, a lawyer with the National Consumer Law Center in Boston, goes even further in talking about debt settlement companies. “It’s possible there are honest ones, but I assume they aren’t until proven otherwise.”

Since I have been practicing bankruptcy law in Indiana for almost twenty-five years, the Times reporter wanted my comments about debt settlement. Did I recommend debt settlement as an option, and in which situations, they wanted to know. I responded that many consumers who don’t understand the bankruptcy process seize at any alternative. I explained that others explore bankruptcy, only to find they cannot qualify for a Chapter 7 bankruptcy.

You can read the entire article in the February 9th issue of “Your Money” in the New York Times. But there’s one main thought I want to leave with the readers of my blog. When people first come to the realization that their debt is getting out of hand – that is when they should begin to explore all their options. The message is simple: the earlier in the process you get qualified advice, the greater the number of options you’ll have to choose from. Debt settlement companies, for better or worse, can offer only that one service of debt settlement. My role is not only as bankruptcy attorney, but also as a consumer debt counselor. My task is to help you explore all the options – debt management repayment plans, debt settlement, and bankruptcy. Basically, your debt is a legal issue, and only a lawyer is qualified to advise on legal issues.